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Service level agreements
The IT service providers' success platform

Service level agreements can be reformed from static documents to platforms of success if properly prepared
By ANGUS FORSYTH and YVONNE CHIA

SLAs -- issues to consider & temptations to resist

Exemptions clauses of SLAs -- Hong Kong judicial & statutory positions

i    notice of terms given at or before conclusion of contracts;

ii    terms are contracted in a document intended to have contractual effect; and

iii    reasonable steps have been taken by the party seeking to rely on the terms to bring them to the attention of the other party. Generally, the more unusual the exemption, the more prominent it must be to constitute sufficient notice. For onerous exemptions, judges have indicated that they need to be printed in red ink with a red hand pointing to it.

SLA markers

SLAs, like any other contracts, must constitute full records of parties' intentions. Typical components of a SLA include:

Identification of Parties & Recitals

-       Due diligence of the customer entities (e.g. conduct company
      searches and enquires who has real shareholding control) is
      recommended especially if service providers have no previous
      dealings with them.

-         Particulars of services ("IT Services") and completion dates
        should be confirmed with the customer and fully detailed in a
        work schedule attached to the SLA.

-         Request customer to provide accurate materials and data
        necessary for service providers to provide the IT Services and
        guide the customer into perfecting this.

-         Provide mechanism for changing the IT Services to
        accommodate changes in governmental regulations or safety
        standards.

-         If system specifications are relevant, what is the effect of
        their alteration?

-         What is the consequence of a system fault affecting quality
        or preventing delivery?

-         Does the payment schedule tie in with the completion
        schedule?

-         Billing frequency.

-         Payment of applicable taxes or surcharges to be borne by
        the customer.

-         Default interest.

-         What are the basis of charges? Are they performance
        related?

-         Insurance.

-         Ability of the service providers to sub-contract their
        obligations.

-         All information and data given by the SP relating to the IT
        Services belong to the service provider subject to the
        customer's use to utilise the IT Services.

-         Are the IP rights of work done for the customer assigned
        to him?

-         Information provided by each party will not infringe any third
        party IP rights.

-         What are the compliance performance standards and their
        monitoring tools?

-         The extent of application of implied warranties should be
        considered, in particular, the effectiveness of such exclusion
        clauses under the governing legal jurisdiction of the SLA. As
        mentioned, liability arising from negligence causing death or
        personal injury cannot be excluded under Hong Kong law.

-         Is the service providers' liability capped? Exclusions for
        different types of damages should be considered.

-         What is the duration of the SLA and can the term be
        extended?

-         What are the termination events and notice period?

For example, notices, force majeure and entire agreement provisions.

-       Is the dispute resolution by means of arbitration or court
      proceedings? The choice of governing law and jurisdiction
      should be selected having considered, inter alia, the parties'
      places of incorporation and principal places of business. If
      arbitration is chosen as the principal mode of dispute
      resolution, the situs and the governing arbitration rules should
      be stated.

SLM and corporate governance

SLM creates defined and repeatable processes for service improvements and a speedy remedy. The remedial work will, in turn, impact on the service providers' overall capacities and corresponding adjustment and need for additional resources should be drawn to the management's attention to ensure performance of service providers' other services are not adversely affected. Corporate governance is intrinsically wedded to SLM and represents the top level, directional glue that melds together the disparate components of shaping the management style, corporate culture, core competency and, lastly, ensuring operational excellence.

Angus Forsyth and Yvonne Chia are with IT Practice Group of Stevenson,
Wong & Co. (Web site: www.sw-hk.com)